Lord Turnbull: My Lords, I start by congratulating Philip Augar and his review team on a thoughtful and comprehensive report on post-18 education and funding. Alongside housing and long-term care, this is one of the three great unresolved issues crowded out by Brexit.
The area they investigated was looked at last year by the Economic Affairs Committee, of which the noble Lord, Lord Layard, and I are the survivors here this evening. While some of the details are different, Augar has come up with pretty much the same conclusions on the key questions. The first, and by far the most important, is recognising the division between the university graduate stream, comprising about 50%, and the non-graduate stream. The fact that no one has come up with a name that identifies the other 50% by its positive characteristics, rather than by what it is not, is symptomatic of  the problem. The graduate stream has been heavily favoured—the noble Lord, Lord Adonis, would probably say pampered—in recent years, and the other stream has been neglected, even vandalised. This has produced a divide in our society. It is the San Andreas fault which runs down through Britain, corresponding closely to the polarisation of the Brexit debate and the north/south divide. It is a crucial blockage and is growing concerns about social mobility.
At the start of the debate, the noble Lord, Lord Storey, set out the simple figures: 1.2 million undergraduates in higher education receive £8 billion of public funding and 1.2 million in further education receive £2.3 billion. Noble Lords can work out the arithmetic for themselves, but it is pretty indefensible. The report identifies a gap between level 2 and level 6, describing it on page 33 as “the missing middle”. I would describe it as more like a blasted wasteland. The problem is that someone who reaches only level 2 at school rarely goes on into this middle zone, still less beyond. Those who do reach level 3 overwhelmingly opt to go straight to level 6. This has represented a decline in the middle-level qualifications that we used to be familiar with—HND, HNC, BTEC and so on. This fault line is divisive, unfair and quite unlike anything seen in other countries. It does not map on to where the UK has the greatest skill shortages. The balance must be redressed, and if we take one message from the report, this is what it should be.
The second headline conclusion is that what was called the student loan scheme had a solid rationale—that students who benefit from graduate studies should contribute more than those who do not—and should be repaired rather than abolished. But Augar rightly argues that it should be described as what it really is: a student contribution scheme. All sorts of distortions have come into the scheme as it has been modified over time. The review has come up with a counterproposal of its own. I prefer a scheme with a £7,000 fee and a teaching grant, provided that it happens and is intelligently used, to one with a £9,000 fee and no teaching grant.
The third conclusion is that the university sector, of which we are rightly proud and which contains some genuinely world-class institutions, has developed some bad habits, largely induced by the funding framework, inflation of costs and salaries, and the encouragement to recruit as many students as possible using devices such as unconditional offers and grade inflation. Augar points out that some of this expansion has provided poor value for students and for the nation. Significant numbers of graduates have emerged struggling to find work of the quality they expected and to earn enough to pay back the loans. Many disillusioned graduates would have done better to go through other channels, had they been of suitable quality. Augar is quite blunt about this. The report is reluctant to return to micro-control of student numbers but recommends putting universities on notice that they must address poor-quality courses and poor outcomes.
The next major observation is that abolishing the means-tested grants was a mistake. When the Economic Affairs Committee spoke to students, their major grievance was not about the repayment system, which they under- stood quite well, but about maintenance that was enough  to live on during their years of study. I believe this was a decision taken for what I would call dishonourable motives, by which I mean it was done to produce not the best educational outcomes, but what looked best in the way the public accounts were drawn up. Make it a loan and it can be written off 30 years later. That game is up thanks to a recent belated decision by the ONS to change to an accounting treatment that recognises write-offs from the start.
I also welcome the lifelong learning allowance and, in particular, the abolition of the equivalent learning qualification rules, which have been very damaging, restricting the ability of adult students to choose a course that takes them on to the next stage and provides the skills that they want.
There are details that I have reservations about. I do not think that the real rate of interest should remain at 3%—and still not if added to the RPI. This is higher than the long-run growth rate of the economy and the long-run growth rate of earnings, as the recent briefing note from the Library tells us. In consequence, debt will tend to rise faster than the ability to repay it. I prefer the EAC’s recommendation that students be charged what it costs HMG to raise the money: the 10-year gilt rate. I suspect the dead hand of my alma mater, the Treasury, because the interest cost is treated as current income.
I also wonder about the 40-year repayment period, which means that graduates will still be making repayments into their 60s. Another part of the policy framework will be encouraging people of precisely that age to start putting money aside for long-term care. I am not sure that they can really do both. However, one should be wary of picking bits from the package. The cap on interest payments and delaying the real interest rate rise from kicking in until studies are completed might off-set some of my concerns.
By the time I came to the section on apprenticeships, I thought that the review was rather running out of steam. The present regime is severely flawed and underpowered. A lot more needs to be done to breathe life into a scheme that can provide an excellent earn-as-you-learn route into the world of work.
I am picturing a school reunion 10 years hence. One student asks another, “What have you done?” He says, “I got a degree, I’ve had various jobs since, but I still haven’t found the job that I want, so I don’t think I’ve really started my career yet”. The other says, “Well, I got a rather good apprenticeship, I’ve been working for the same employer, I’m loyal to them and they’re backing me, and I’ve nothing like the debts that you’ve got”. Eventually the word will get around that there are other good options beside university, but they will be taken up only if they are adequately signposted. Also, I strongly agree with the recommendation that degree-level apprenticeships should not be made available to those who already have a degree.
What should happen? The Government should stay firm to the principle of redressing the balance, even though they will face opposition. However, as the noble Lord, Lord Layard, advised us, it will happen only if the mechanisms to make it available are there. Simply saying that the money is there will not be enough—we need to find the people, the institutions,  the mechanisms and someone in the Government to champion this. The other major change is that there needs to be a lot more education of teachers, careers advisers and parents on what the options are and how one does not have to pursue a straightforward degree, but can pursue other things and thrive perfectly well.